Investing Strategies for Canadians

When you look at the characteristics that define history’s most successful investors, you’ll notice they have one thing in common: each followed an investing strategy. Warren Buffett and Benjamin Graham, for example, have become synonymous with value investing. Thomas Rowe, growth investing. These billionaires didn’t just throw money in the wind and hope it would come back doubled. They set out with a clear plan, and they followed it even when the market became shaky.

Whether you’re just starting out, or you’ve been investing for a while, it’s always good to follow a clear investing strategy. If you don’t have one, don’t worry: below we’ll break down the most common ones in detail, helping you choose the right one(s) for you. 

Best investing strategies for Canadians

An investing strategy is simply a plan of action that’s designed to help you pick the best investments for your goals, values, and risk tolerance. 

Below are five of the most common investing strategies for Canadians. Though you can certainly follow one strictly, feel free to combine elements of different strategies if it feels right (for instance, socially responsible investing with index investing). The goal here is simply to find an investing strategy or combination that works for you, then stick with it. 

Growth investing

Growth investing is a strategy that focuses on buying shares in rapidly expanding or newly emerging companies. As a growth investor, you’re looking for businesses with impressive—and often industry-disrupting—products or services. The goal is to invest early, while the stock price is still relatively low, and profit as the company grows and its share price increases.

In recent years, many tech companies have become popular growth stocks. The allure behind tech stocks is that their companies will offer a new product or service that better fits consumers’ needs and radically changes the face of the industry or market. 

Growth investing is considered an active strategy, which means it requires a more hands-on approach. You’ll likely need to:

• Analyze company data, including financial statements and balance sheets
• Understand the industry the company operates in
• Evaluate whether the company has real potential or if its stock is overinflated

This research helps you assess whether a company’s risk level aligns with your portfolio and if it’s worth the investment. Growth investing can offer high rewards, but it also comes with higher risk—making it a strategy best suited for informed, engaged investors.

Value investing

Similar to growth stock investing, value investors look to buy stocks that are priced lower than they should be. But, instead of having an eye towards future explosive growth, value investors are simply looking for a bargain. 

Value investors focus on companies whose stocks are undervalued. These companies could have growth potential. Or they could simply have slowed down over the years. Either way, value investors believe the company’s stock is lower than the company is actually worth. They buy shares with the hope that the market will eventually recognize the company’s real value, helping value investors ride a positive wave up.  

Again, value investing is an active investing strategy. You’ll analyze financial statements and compare a company’s assets, revenue, cash flow, and debts with its current stock price. You’ll need to be patient, as value stocks don’t always just fall into your hands, and you’ll probably be scanning the market frequently for a bargain. But if you spot quality value stocks, you could secure some lucrative returns. 

If you are interested in value investing, you should sign up for Hidden Gems, our stock picking service that concentrates on smaller Canadian and US companies, typically valued under $5 billion CAD.

Investing in funds

Both growth and value investing are active strategies that require time, research, and a solid understanding of the market. If that sounds like more than you’re ready to commit to, you might prefer a simpler, more hands-off approach: investing in index funds.

Index Investing

Index investing involves buying shares in a market index, such as the S&P/TSX Composite Index. These indices include companies that represent either the broader market or a specific sector. The fund tracks their performance, and your returns depend on the index’s overall gains, minus fees.

With an index fund, you buy a basket of investments for one price rather than picking individual stocks yourself. Once you choose the index you want to follow, you simply invest and let the fund manager handle the rest.

Exchange-Traded Funds (ETFs)

Exchange-traded fund (ETF) are very similar to index funds. They track an index and aim to mirror its performance. However, there’s one major difference: ETFs can be bought and sold throughout the trading day, just like stocks. In contrast, index funds only trade once per day after the market closes.

Key advantages of ETFs:

• Intra-day trading flexibility.
• Typically low fees and broad market exposure.
• Easy to buy and sell using a brokerage account.

Mutual Funds

Mutual funds come in two types: passive and active. Passive mutual funds track an index, similar to index funds or ETFs, and often perform better in bear markets due to their lower costs. Active mutual funds, by contrast, are managed by professionals who hand-pick stocks in an effort to beat the index; while they may outperform in bull markets, their higher fees can significantly erode returns.

What makes mutual funds appealing:

• Professionally managed portfolios.
• No need to choose individual investments.
• Can be suited for either passive or active investors depending on the fund type.

In summary, if you want a lower-effort, diversified approach, index funds and ETFs are excellent choices. If you’re comfortable paying more for the chance of higher returns, active mutual funds might be worth exploring.

Dividend investing

A dividend investing strategy focuses on buying stocks that pay out a regular cash dividend. These stocks are typically well-established companies with a long history of success. For that reason, many consider dividend investing to be a less risky investing strategy, as these company’s shares experience less volatility than, say, growth stocks. 

Of course, dividend investing has its risks, too. A company could hypothetically decrease its dividend if it experiences financial hardship. At the worst, it could discontinue its dividend program. But if you do research at the front end, evaluating a dividend stock’s payout history and dividend yield, you can successfully pick quality dividend stocks. 

If you are interested in dividend investing, you should sign up for Dividend Investor, our dividend-focused service geared towards investors looking for high-yield opportunities.  

Value-based investing 

Many investors don’t want to just “earn” money on investments. They want to put their money in companies that will make a positive change in the world. If that sounds like something you want to do, you could engage in socially responsible investing. 

As a value-based investor, you examine a company not just by its financial performance but also its business practices, leadership, and resource management. The goal is to pick companies that will grow their revenue, while also engaging in practices that align with your values.

One branch of value-based investing is ESG investing. ESG stands for Environment, Social, and Governance. ESG investors believe that, over the long-haul, the most successful companies are those that will have a positive impact on the environment, treat their employees right, and employ diverse and generally altruistic leaders who guide the company in the right direction. 

Comparing Investing Strategies

Just starting investing? Keep these principles in mind 

The investing strategies discussed above will help you choose an investing style, as well as a clear plan to attack the market. For those Canadians who are just starting to invest there are some basic concepts to consider first. Here are five tenets that can help you start investing. 

Pick the right investing account 

Everyone has to start somewhere. And, for nearly every Canadian, that “somewhere” is with an online brokerage or through an employer. 

When it comes to retirement accounts, you have options. You can open a Registered Retirement Savings Plan (RRSP), which will allow you to invest pre-tax dollars with a tax-deferred benefit. You could also open a Tax-Free Savings Account (TFSA). With a TFSA, you can invest after-tax dollars and avoid paying taxes on investment earnings altogether. 

Some Canadians may have the option to open a Group RRSP through an employer. If so, consider starting there, especially if your employer offers a contribution match. Otherwise, you can open an RRSP, a TFSA, or a non-registered retirement account through an online brokerage. 

Invest consistently 

Once you open a retirement account and brokerage, you can start funding your account and buying investments. One great practice to establish, especially in the beginning, is to regularly put money aside . By investing consistently, you’ll create a snowball effect in your portfolio, adding more and more money which, with eventual gains, creates momentum. 

Once you open your account, then you can start putting money in it. A good method for first-timers is dollar-cost averaging. With dollar-cost averaging, you allocate a certain amount of money towards investing every period (weekly, monthly, yearly). You might, for instance, put $200 towards investments biweekly, or you could set a certain amount, say $5,000, to put in every year. The amount of money you allocate doesn’t matter as much as the practice. The idea is that by investing consistently, you’ll grow your savings over time.

Diversify 

Diversification is the practice of holding investments from different market sectors and asset classes (bonds, real estate, currencies) to minimize risks and maximize gains. A properly diversified portfolio could give you enough exposure to the market, while also helping you hedge volatility with safer investments. 

Diversification involves two aspects: picking stocks from different sectors, risk portfolios, and countries; as well as mixing different types of investments, such as bonds, real estate, commodities, and currencies. Diversification can also involve combining different investment strategies, using growth, value, and dividend investing to create a well-mixed portfolio. 

Invest for the long term 

When you’re just starting out, you can easily get wrapped up in dreams of getting rich quickly. As attractive as that narrative is, history shows the opposite is true. The most dependable way to build wealth through your investments is to hold them for the long-haul. 

With this long-term perspective, you don’t have to worry about timing the market or selling at just the right moment. Instead, you will find quality investments that will stand the test of time, helping you accrue money slowly but surely. 

Stay educated  

As the Oracle of Omaha, Warren Buffett, has often advised: when it comes to investing, never buy something you don’t understand. That means both the mechanics behind certain asset classes (for example, understanding how a stock works), as well as the fundamentals of companies, and trends of sectors (e.g., cyclical or non-cyclical) you plan to invest in. 

As an individual investor, this might sound time-consuming. But your investing education doesn’t have to be a one-night cram reminiscent of a college exam night. As you read more material, and as you practice investing, you’ll start to get the hang of terms, principles, and best practices to aid your own investing strategy. 

FAQs

What is the difference between ETFs and mutual funds?

ETFs trade like stocks on an exchange throughout the day, while mutual funds are only priced and traded once after the market closes. Additionally, ETFs typically have lower fees and are more tax-efficient, whereas mutual funds may be actively managed and can carry higher management costs.

What is the best investing strategy for beginners in Canada?

For most beginners, a passive investing strategy using low-cost index funds or ETFs is ideal because it offers diversification and requires minimal research. Starting with a TFSA or RRSP can also help maximize tax advantages while building long-term wealth.

Should I hire a financial advisor or manage my own investments?

If you’re new to investing or unsure about creating a portfolio, a financial advisor can provide personalized guidance, though they typically charge higher fees. More experienced or self-directed investors may prefer to manage their own investments using online brokerages to save on costs.